How energy storage can turn oversupply into an opportunity

Interrupting renewable energy is not only a challenge when the sun is not shining or the wind is not blowing. For many regions, the oversupply of renewable electricity during sunny and windy times with low grid demand presents its own economic and operational challenges. In California, more than 2.7 TWh of renewable energy – primarily solar – was curtailed under such conditions last year. And in the Midwest, periods of excess wind generation regularly result in negative electricity prices.

As more renewable energy is added to the grid, the oversupply presents a tremendous opportunity for new energy storage technologies that can economically alleviate grid congestion and improve the use of renewable energy to support grid flexibility. While short-term lithium-ion batteries are now the predominant grid-scale battery technology, new long-term energy storage (LDES) technologies are best suited to capitalize on energy market conditions and turn excess renewable energy into an opportunity while meeting the needs of cover a rapidly evolving grid.

The oversupply of renewable energy and the negative LMP remain

Research from Lawrence Berkeley National Laboratory shows that oversupply of renewable electricity – and the resulting negative local marginal pricing (LMP) – is widespread and worsening across the country. In parts of wind-dominated Kansas and Oklahoma, electricity prices are negative more than 25% of the time. California, Texas and New York also regularly record negative LMP.

Looking ahead, Wood Mackenzie predicts negative prices will increase by 2040. Even taking into account the rapid growth in energy storage deployment, the analyst firm believes this will not be enough to mitigate the fundamental drivers of negative prices. This presents a significant opportunity for operators deploying energy storage systems.

Short-term solutions limit revenue opportunities

While lithium-ion is currently the most widely used battery storage technology on the grid, its characteristics limit operators’ ability to generate revenue and address congestion. Most lithium-ion projects have durations of four hours or less, are limited to daily and lifetime cycles, and experience capacity degradation that requires regular investment in expansion.

With short-lived lithium-ion batteries, operators can provide ancillary services, serve capacity markets, shift clean energy in bulk, or take advantage of energy arbitrage opportunities in congested areas. However, you cannot serve multiple use cases with the same asset. A shorter duration, coupled with cycling restrictions, limits their revenue potential and the ability of operators to improve the use of renewable energy.

Long-term energy storage opens doors to value creation

Unlike lithium-ion batteries, which were originally developed for consumer electronics, many LDES technologies were developed specifically to meet the needs of the power grid. With storage durations of eight hours or more, LDES technologies enable multiple markets to be served simultaneously and diversify the revenue streams available for a single asset. This allows operators to achieve attractive returns, especially in regions where there is regularly an oversupply of renewable energy and negative prices.

For example, IFB (Iron Flow Battery) technology, which allows energy storage of up to 12 hours, allows unlimited cycles without sacrificing capacity over a project’s planned lifespan of 25 years. ESS modeling shows that these characteristics can enable project owners to achieve a higher internal rate of return than lithium-ion projects in regions where negative prices are common and in applications that span both merchant and capacity markets. In other words, unlike lithium-ion battery technology, iron flow systems can combine revenue streams and participate in multiple markets with a single asset thanks to the inherent flexibility and longer lifespan of IFB technology.

LDES systems will be critical to achieving baseload renewable energy by combating intermittency in the coming years, but they have more to offer than just uninterrupted power. LDES is a flexible tool for operators to optimize the value of their excess energy and ultimately support grid stability and renewable energy integration.

Achieve positive returns with grid-scale LDES

The challenges of oversupply are not going away. The deployment of renewable energy and associated changes in grid management will continue to dominate the U.S. energy transition in the coming decades, especially as grid operators retire more than 200 GW of aging power generation capacity, primarily coal, over the next decade.

LDES technologies with the right operating characteristics can counteract congestion, exploit oversupply and improve network operations. Ultimately, utilities, generators and network operators can use LDES to create the basis for a resilient and both ecologically and economically sustainable network of the future.

—Hugh McDermott is senior vice president of business development and sales at ESS Inc.